Bank of England buries head in sand over interest rates - despite inflationary pressures
The Bank of England's monetary policy committee (MPC) have voted unanimously in favour of holding rates at 0.1 percent. This announcement has come to the disappointment of many who hoped it would be brought in sooner to combat rising inflation. The central bank will also keep up its £875billion quantitative easing programme.
Commenting on the Bank of England holding interest rates, Ian Warwick, Managing Partner at Deepbridge Capital, said: “As inflation continues to rise beyond the Bank of England’s own estimates, many early-stage businesses will have been watching the debate around the latest Monetary Policy Committee decision on interest rates very closely. They will continue to be relieved that rising inflation has still not triggered a subsequent rise in interest rates which will directly impact how much they are able to borrow at a crucial time, when the economy has only reopened again. With inflationary pressure continuing it raises the question of exactly how long the Bank can hold interest rates at current levels before it is forced to step in, subsequently causing a problem for growing, early-stage companies who require access to funding as we focus on economic recovery. It therefore remains critically important that scale-up businesses, particularly in high-growth sectors such as digital technologies and life sciences are supported as they will be at the very heart of economic growth as we create an economy fit for the twenty-first century.
“Government initiatives such as the Enterprise Investment Scheme (EIS) have never been more important for helping entrepreneurs and innovators source the funding they require, whilst also offering private investors with tax incentives to develop UK-supporting private equity portfolios. With our EIS funds reaching record levels of funding in 2020/21 it is evident that there is considerable demand from investors and financial advisers alike to invest in early-stage UK companies which we believe will be at the forefront of our economic recovery.”
Jason Cozens, Founder & CEO of Glint, says: "Central banks are continuing to bury their heads in the sand; even the Bank of England has acknowledged that 4% inflation is likely - of course, the reality could even be much worse as some analysts have been forecasting that figure for a weeks or even months. With inflation continuing to surge globally, central banks simply have to act now."
"Raising interest rates would be a lifeline for many consumers and savers who have seen the value of their cash and savings decline as costs continue to soar whilst interest is virtually non-existent. The UK services sector is experiencing its highest levels of inflation in 25 years whilst consumer prices in the US are up 5.4% in a year, an increase not seen since the 2008 financial crisis, and producer prices in China have soared 8.8% - imagine if these costs are passed onto global consumers too."
"In addition to rising inflation and low interest rates, the huge amounts of national borrowing and debt are colluding to erode the value of cash and savings. The UK national debt currently sits at £2.2tn or over 99% of GDP, but these figures are even more frightening in other major economies such as the US and Japan where debt accounts for 108% and 266% of GDP respectively."
"It's no wonder that consumers are looking for alternative ways to spend and save their money - this is not only a search for greater value, but also for greater control over their finances. Cryptocurrencies may have been popular earlier this year but Bitcoin's value has plummeted 42% since the peak in April, despite its slight recent resurgence. Gold prices have increased by almost 5% over the same period and, whilst its value can decline, gold has proven its reliability as a long-term store of value."
